CONSUMER confidence in the financial service industry has been wilfully annihilated over the past few years by a series of grotesque mis-selling scandals. Pensions, endowment policies, supposedly low-risk split capital investments and insurance have all hit the headlines.

Now another mis-selling abuse is brewing - and this time it is vulnerable elderly people who risk being targeted.

Home reversion plans have become popular with retirees wanting to boost their income by tapping into the booming property market.

Millions have discovered that by selling all or a proportion of their home in return for a lump sum, they can supplement their pensions and disappointing returns from savings and investments.

The big plus with home reversion plans - which should not be confused with lifetime mortgages, another form of equity release - is that a pensioner can continue to live in their property rent free until they die.

But fears are growing that, unless these schemes are regulated, many could find taking money out of their home becomes anything but a sweet release.

The Financial Services Authority (FSA) is due to take over regulation of the equity (lifetime) release market in October this year. Home reversion plans are not included, however.

Now everyone, from mortgage lenders to charities for the elderly and the UK equity release industry body, SHIP (Safe Home Income Plans), are calling on the Government to bring in extra measures to protect customers - or risk disaster. All are concerned unscrupulous salesmen will enter the market once lifetime mortgages come under the control of the FSA.

For while the methods of raising cash from a home reversion scheme are different to a lifetime mortgage - with the latter homeowners take out advances secured on the property with the interest rolling up inside the loan, which is repayable when the occupants die or move into care - there is concern both types will be viewed as interchangeable.

Mervyn Kohler for Help the Aged says: "As far as the general public is concerned, equity release is equity release. If home reversion schemes remain unregulated, there is a real fear that rogue dealers - loan sharks, maybe, or other unsavoury operators - will start offering apparently cheaper deals because of the lower compliance costs.

"People will only realise they've got a bum deal when it's too late. Apart from anything else, this will then prejudice the good name of the equity release market as a whole, after it had worked so hard to rebuild the trust lost a decade ago."

In its response to the Treasury's consultation on home reversion plans, the Council of Mortgage Lenders (CML), said: "Although there have not been any particularly negative stories about reversion products to date, if any mis-selling were uncovered, it would be likely to damage the whole equity release market.

"If there is no statutory regulation (of reversion schemes), consumers will have no access to statutory dispute resolution or compensation arrangements."

SHIP, which represents 90pc of the equity release industry, believes the introduction of regulation in lifetime mortgages, and not home reversions, will lead to a two-tier system.

This, it claims, may result in consumer confusion, and may lead to brokers favouring lifetime mortgages over home reversions due to regulatory reasons and will ultimately reduce overall development of the equity release market.

Jon King, chairman of SHIP, says: "Over the last 13 years, SHIP has always advocated government regulation of equity release. In the interest of consumers, SHIP urges the Government to regulate home reversion schemes alongside lifetime mortgages to create a level playing field in the equity release market."

One of the main problems in creating a level playing field, however, is that the two types of scheme fall into different categories under current law. While lifetime mortgages are part of the mortgage sector, which is due to come under FSA control, home reversion schemes are part of the property sales industry.

Teresa Fritz, of the Consumers' Association, says the Treasury should not let this deter them, though. "There is no reason for this to be treated as an insurmountable problem. Apart from anything else, if the Treasury believes lifetime mortgages are risky enough to be regulated, how on earth can they argue that home reversion schemes are not?"

SHIP is pre-empting the Government by introducing its own tough code of practice to ensure best possible consumer protection continues. SHIP is also reviewing its rules and its role in enforcing compliance and a toughened complaints procedure.

Ironically, the volume and value of home reversions has been in decline for four consecutive years, which is in contrast to a steadily increasing total equity release market.

According to new data from the CML, lifetime mortgage lending (that is, equity release to older home-owners), grew by nearly 69pc last year. Over 25,000 lifetime mortgages worth over #1bn were advanced. This compares with 16,300 worth #655m in 2002.

The average loan taken out in the second half of 2003 was #44,000, and the typical minimum age for borrowers was

60. Jackie Bennet, CML senior policy adviser, says: "Lifetime mortgages represent just a third of one per cent of the total mortgage market, although business is growing rapidly.

"We see lifetime mortgages as a growth area, as older home-owners increasingly tap into their house equity to fund a more financially secure old age."

Demand for equity release is predicted to explode from #1bn to #50bn in the next five years.

So lucrative is the market that many of the big financial players now offer equity release schemes. SHIP has 18 members, including the likes of Abbey, Ecclesiastical Life, GE Life, Legal & General, Northern Rock, Norwich Union and Prudential.